Mortgage Lending Clampdown Comes Into Force
Homebuyers will face more scrutiny by mortgage lenders under new regulations which take effect today.
The industry-wide changes affect home buyers and people looking to re-mortgage and they will mean that lenders have to take a much stronger interest in people's spending habits and how their life plans could affect their ability to meet their repayments.
Mortgage applicants will need to sit through longer interviews, and provide more evidence that they can afford a home loan before being offered one.
Each lender will have their own interpretation of the new rules, but in general people are likely to be asked for more detail about regular outgoings such as childcare, food, household bills, loans, credit cards and leisure activities.
The changes also mean lenders will have to test whether homebuyers will be able to afford their mortgage payments if interest rates rise sharply, to 7% or above.
The Mortgage Market Review (MMR) rules aim to ensure there is no return to any irresponsible lending practices of the past, but there are some concerns that it could slow down the housing market.
Paul Broadhead, head of mortgage policy for the Building Societies Association, said: "The Mortgage Market Review was introduced in order to ensure that a common sense approach to mortgage lending is applied by all lenders and that people are not borrowing more than they can afford to pay.
"A number of building societies implemented the process early and have been lending this way, without problems, for a number of weeks."
Andrew Montlake, a director at broker Coreco, said that for people considering applying for a mortgage: "It's important for people to prepare a lot earlier, potentially six months before you apply. Start looking through your documentation and go through a budget."
He said most lenders will want to know whether mortgage applicants are planning to increase their spending for any reason in the near future and if they are expecting a change in their income.
Martin Wheatley, chief executive of the Financial Conduct Authority was asked this week about reports that some people are being asked if they are planning to have children.
He told the Daily Mail: "If you are eight months pregnant, that is a reasonable question. But most of the time that is probably too invasive - and that is not committed expenditure. People have a right to a certain degree of privacy.
"People should be expected to talk about known costs, such as school fees and car loans, but planning for future unknown events is a much more difficult space."